Leading article: The end of independence?

Share
Related Topics

The granting of independence to the Bank of England in 1997 was the rock on which Gordon Brown built his reputation of economic competence. With so many other aspects of New Labour's economic record looking shaky, surely the Prime Minister would not be so foolish as to chip away at this foundation stone?

Some are picking up disturbing signals. The first of these was the announcement late on Wednesday evening of the premature departure of Sir John Gieve as deputy governor of the Bank of England.

It was no secret that Downing Street had been unhappy with the Bank's handling of the implosion of Northern Rock. And Sir John, by virtue of his specific responsibility at the Bank for overseeing financial stability, had taken much of the political flak for that failure. He was given quite a roasting by the Treasury Select Committee last autumn. It is perfectly true that Sir John, with no in-depth market or economic expertise, might not have been best suited to this role. And he was not the first choice of the Bank's Governor, Mervyn King, when he was appointed two years ago. Yet under the 1988 Bank of England Act, deputy governors are not supposed to be fired. Some are interpreting this sudden personnel change, rightly or wrongly, as a sign that this is no longer the case.

The second worrying sign is the release yesterday by the Treasury of details of a new banking reform bill. The Treasury says this bill will give the Bank of England enhanced responsibilities for rescuing stricken retail banks such as Northern Rock. Yet at the same time, the bill will establish a "Financial Stability Committee" to advise the Governor in times of crisis. So is this another stealthy political encroachment on the Bank's independence?

We shall have to wait for the details of the committee's composition and personnel. In the meantime it is perfectly possible for ministers to make the case that there is no harm in giving the Bank of England another source of expert advice. And it is difficult for Mr King to reject it without appearing arrogant or ungracious.

But the Government should be cautious. Even if the Bank of England remains as free today to exercise its own judgement as it was in 1997, it is the outward perception of independence that matters most for the financial markets and the public, in terms of the credibility of monetary policy. With the economy facing its most testing times in two decades, ministers jeopardise that perception at their peril.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

LSA Level 3 required in Caerphilly

£50 - £60 per day + plus Travel Scheme: Randstad Education Cardiff: The Job: O...

Welsh Year 6 Teacher required in Barry

£100 - £110 per day + Plus travel scheme: Randstad Education Cardiff: The Job:...

Business Analyst - Surrey - Permanent - Up to £50k DOE

£40000 - £50000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

Welsh Teacher Year 2 required in Caerphilly

£100 - £105 per day + plus Travel Scheme: Randstad Education Cardiff: The Job:...

Day In a Page

Read Next
Pro-democracy protesters fill the streets in front of the Hong Kong government offices on a third day of the Occupy Central campaign  

Hong Kong protests: Why are we obsessed with the spread of democracy abroad when ours is failing?

Amit Singh
 

Daily catch-up: ugly buildings, fighting spirit, and a warning on low pay

John Rentoul
Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

Paris Fashion Week

Lagerfeld leads a feminist riot on 'Boulevard Chanel'
Bruce Chatwin's Wales: One of the finest one-day walks in Britain

Simon Calder discovers Bruce Chatwin's Wales

One of the finest one-day walks you could hope for - in Britain
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?